Broker's Notes: Gold eases after Portugal bond sale lifts concern

Gold

Gold eased on Thursday after rising to its strongest in a week in the previous session as strong demand for Portugal's bond sale lifted some concern over the debt crisis in Europe. Investors awaited debt auctions by Spain and Italy later in the day and the release of US jobless claims after a recent pick up in US economic data prompted some economists to beef up growth forecasts for the first half of 2011. Gold was off a lifetime high around $1,430 struck in early December, when fears the debt crisis in Europe would spread ignited buying from investors. Activity in the physical market had yet to pick up, but dealers noted some buying from main consumer India ahead of a harvest festival later in January. Silver was steady after rising to a 1-week high on Wednesday on steady demand from the industrial sector, especially in China.  Silver's stellar run this year is likely to continue into 2011, with charts showing that silver is still far below its inflation-adjusted all-time high, but a technical correction may happen in the next few weeks.

Euro

The euro slipped from one-week highs on Thursday after short-covering triggered by Portugal's successful debt auction the previous day ran its course and traders looked to debt sales by Spain and Italy. Portugal's fund raising in the bond market sent bears scrambling to buy back the euro, pushing it above its 200-day moving average, but many hurdles remain for the currency, starting with bond sales by Spain and Italy later in the day.

Hopes for further policy responses by the euro zone to tackle the debt woes are helping the euro amid talk of increasing rescue funds, but they caution it is too early to bet that anything substantial will be agreed at a euro-group finance ministers meeting early next week. The euro slipped 0.2 percent on the day to $1.3105 a day after short-covering drove the currency as high as $1.3145, well above its 200-day moving average of $1.3070 and Monday's four-month low around $1.2860. Resistance lurks at $1.3152 for euro/dollar, a 50 percent retracement of the recent fall from around $1.3435 to $1.2870, while the 200-day moving average will provide support.

US dollar index

The US dollar index, which tracks the greenback's performance against a basket of major currencies, licked its wounds at 80.15 after having lost about 1 percent this week. The dollar moved sideways against the yen at 83.00 yen holding within the previous session's trading range. The Aussie shed 0.2 percent to $0.9940 after a surprisingly small rise in employment data, though strong commodity prices and the currency's high interest rates limited its losses.

Indian rupee

The Indian rupee touched one-and-half-week highs early on Thursday, boosted by overnight losses in the dollar, but soon retreated tracking weak domestic shares, which added to worries of more foreign fund withdrawals. Rupee is, however, a bit stronger because of overall dollar weakness globally, the dollar index had dropped yesterday but there is no follow through selling seen. Traders would watch local shares for clues on the direction of foreign fund flows. Foreign funds are net sellers of nearly $500 million worth of shares so far in 2011, pushing the rupee down 0.8 percent.  In 2010, record inflows of $29.3 billion had helped the rupee rise 4.1 percent. Indian shares skidded lower as software services bellwether Infosys Technologies fell more than 4 percent after posting lower-than-expected quarterly earnings. Traders will watch the food and fuel data due around 11:30 am (0600 GMT) for clues on broader inflation and likely action at the central bank's policy review on Jan. 25.

Oil

Oil extended gains on  Thursday to hold under $92 a barrel, buoyed by signs of higher  demand after US crude stockpiles fell more than expected and  a cold snap swept through the US Northeast, the region's  largest heating oil market.  Reflecting the overall bullish sentiment, European benchmark ICE Brent crude held steady under $100 a barrel on Thursday, but was off 27-month peaks hit in the previous session. The market will scour weekly US employment data for more clues to the health of the world's largest economy. The data released so far has delivered mixed signals. While the country's unemployment rate has fallen by a hefty amount in December, far fewer workers were added than expected. The Energy Information Administration reported yesterday that US oil inventories fell for the sixth straight week, slashing supplies by 2.15 million barrels in the week ending Jan. 7.

Source: Richcomm Global Services, DMCC, Dubai; www.richcommglobal.com